Event: on October 24, the company released its third-quarter results report, Q3 realized revenue of 590 million, down 9.1% from the same period last year, and home net profit was 180 million, down 1.5% from the same period last year.

Q3 performance under short-term pressure, the company has transformed the innovative drug standard. 2023Q3 achieved revenue of 590 million, down 9.1% from a year earlier, and its net profit was 180 million, down 1.5% from a year earlier. The reason for the pressure is expected to be a high base performance due to higher prices of caffeine in the same period last year. The unit price in September 23 was US $10.2 / kg, and the peak price of intersection last year (April 22, US $17.6 / kg) fell by about 42%. In the first three quarters, the company achieved revenue of 1.9 billion, an increase of 0.46% over the same period last year, and a net profit of 580 million, up 12.7% from the same period last year.

It is proposed to increase the capital of Jushi Biology, increase the innovative drug business, and open up the room for growth. The company recently announced that it is planning to increase its capital to Stonehenge in cash, acquire more than 51% of the equity of the target company, and realize the holding of the target company. And after the company's preliminary calculation, this capital increase does not constitute a major asset restructuring. Stonehenge CSPC Pharmaceutical Enbipu Pharmaceutical wholly-owned subsidiary, specializing in antibodies, ADC pharmaceutical mRNA and other biopharmaceutical fields, as of the announcement date, more than 20 research projects, of which mRNA vaccine has been listed, 2 products are in the stage of listing, 3 products are in phase I clinical phase, and 3 products are in phase I clinical phase. This capital increase will expand the company's business from the API business to the field of innovative drugs, and further open up the company's growth space.

The acquisition of stone medicine Shengxue, to increase the size of the big health business. The company has completed the acquisition of 100% equity in Shiyao Shengxue, which is one of the main manufacturers of third-party acarbose raw materials in China, and is also an important supplier of anhydrous glucose. After the completion of the technical transformation, Shiyaoshengxue is expected to become the largest third-party acarbose API manufacturer in China. With the expansion of the share of downstream reagent enterprises, the company's share of APIs will expand accordingly. According to the performance commitment, after the successful acquisition, the performance commitment to deduct non-net profit from 2022 to 2024 is not less than 81 million yuan, 91 million yuan and 102 million yuan respectively. As a platform for CSPC Pharmaceutical's layout in the field of health, the company is expected to undertake CSPC Pharmaceutical's vitamin APIs, traditional Chinese medicine and other major health-related plates in the future, and the extension is still expected.

Profit forecast: we have adjusted our profit forecast according to the company's performance in the first three quarters. It is expected that the company will achieve a net profit of 82x920 million yuan from 2023 to 2024, an increase of 12.6% over the same period last year. The company is a leading enterprise of caffeine raw material medicine. Under the background of recovery after the epidemic, the company's health food business will achieve restorative growth, and the company will complete the acquisition of stone medicine Sheng Xue, expand acarbose and other businesses, and increase its profitability. Upgrade to "Buy" rating.

Risk tips: the risk of a decline in the price of caffeine; the increased risk of competition in the industry; the decline in caffeine exports.